A solution to our money problems

[TheSlamma]

Income from interest has never been a meaningful part of middle class income. They have always been useless.

I was making 5.25% interest in my ING account in 2004, as a saver that was a nice bonus that helped out a couple times a year.

Who is selling you that house? Probably someone else in the middle class. They got a lot of extra money in their pocket.

After this last housing bubble a lot of real estate investment companies bought up the forclosures, rented them out for 2 or 3 years and then when the economy got better they sold them.

Also sure that helps out the seller, but as we can see Millennials have no way to get the capital for a down payment cause 20% of 500,000 = bullshit. You sure you care about the middle class?

Mortgage interest deductions are disproportionately accrued by the wealthy, so if anything lower rates are hurting richer people more. If you care about the middle class we should probably eliminate the mortgage interest deduction entirely.

Those deductions helped me, I was able to use those tax refunds to make a decent principal payment each year on my mortgage to pay it off faster.

Low interest rates have almost no effect on short term debt because it's exactly that: short term. Interest rates matter a lot for mortgages because you pay them off over 30 years. They matter little to credit cards because their balances change much more quickly.

Kind of my point, it's not helping us anyway

The primary benefit of low interest rates isn't your mortgage or whatever like that, it's the expansion of credit in the market that allows more aggregate economic activity to happen. So while your credit card APR might not be lower, you also might have been laid off without the low rates.

The times I got laid off (DotCom) was actually cause easy to get loans allowed companies that should have never existed got loans they should have never been given.

 

[fskimospy]

I was making 5.25% interest in my ING account in 2004, as a saver that was a nice bonus that helped out a couple times a year.

What was your interest income as a percentage of your total income? I'm going to bet it wasn't much.

Look at this chart:

It only gets lower after the 90th percentile. If you care about the middle class, caring about interest income doesn't do anything.

After this last housing bubble a lot of real estate investment companies bought up the forclosures, rented them out for 2 or 3 years and then when the economy got better they sold them.

Also sure that helps out the seller, but as we can see Millennials have no way to get the capital for a down payment cause 20% of 500,000 = bullshit. You sure you care about the middle class?

I'm by most definitions a millennial, I came from no money, I put down a 20% down payment on a place a bit more than a year ago. I most definitely care about the middle class, I'm just saying that this complaint is functionally a wash.

Those deductions helped me, I was able to use those tax refunds to make a decent principal payment each year on my mortgage to pay it off faster.

They helped you some, but helped the upper class much more. If you want to help out the middle class it's a terrible way to do it. You could eliminate the mortgage deduction and lower middle class tax rates much more. Additionally, it wouldn't needlessly advantage home ownership.

Kind of my point, it's not helping us anyway

The times I got laid off (DotCom) was actually cause easy to get loans allowed companies that should have never existed got loans they should have never been given.

That's anecdotal evidence. Actual economic analysis says the opposite. Like I said, this final point is the real benefit, economic/job growth. You should thank your lucky stars that interest rates have stayed low.

If you want to see who higher interest rates really benefit it's easy: go look and see who is advocating for them. Rich people. Creditors, etc. They aren't doing it out of the goodness of their hearts.

 

[TheSlamma]

What was your interest income as a percentage of your total income? I'm going to bet it wasn't much.

It only gets lower after the 90th percentile. If you care about the middle class, caring about interest income doesn't do anything.

As I stated, it was enough to help out a few times a year, as opposed to the jack shit I get now. I never stated it was going to make me retire early.

I'm by most definitions a millennial, I came from no money, I put down a 20% down payment on a place a bit more than a year ago. I most definitely care about the middle class, I'm just saying that this complaint is functionally a wash.

Anecdotal, the stats show that many millennials struggle with the down payments of these bullshit priced houses.

They helped you some, but helped the upper class much more. If you want to help out the middle class it's a terrible way to do it. You could eliminate the mortgage deduction and lower middle class tax rates much more. Additionally, it wouldn't needlessly advantage home ownership.

They helped me some, the second part is a pipe dream that no democrat or republican politician will ever pass through. For now I'd rather have some reality. If the other were ever to come true, great I've got open arms, until then I'm gonna file it under pipe dream.

That's anecdotal evidence. Actual economic analysis says the opposite. Like I said, this final point is the real benefit, economic/job growth. You should thank your lucky stars that interest rates have stayed low.

Being you are a Millennial you were not yet in the workforce then, it happened to many many IT people not just myself. Look back at those DotCom based companies, most of them were BS companies with easy to get party loans.

If you want to see who higher interest rates really benefit it's easy: go look and see who is advocating for them. Rich people. Creditors, etc. They aren't doing it out of the goodness of their hearts.

You have a good points about the people clamoring for it, but at the same time right now middle class are smothered in the thought that these low interest rates are allowing them to afford bigger homes and cooler cars, of course they don't want to see that go away.

I just have my other issues as stated above I am not seeing good results on either. Maybe in theory the low rates should be great for us, but I feel that every avenue has been exploited yet again and middle class is still not seeing all the advantages maybe low interest rates should have on us. We've been at these record lows for a long time now and the 1% is consistently increasing their percentage of all income. But maybe there is no relation. I just know I have lost some helpful resources that I used to have and I know others who also have. But they like me are ants and not grasshoppers with their money

 

[Jhhnn]

If you want to see who higher interest rates really benefit it's easy: go look and see who is advocating for them. Rich people. Creditors, etc. They aren't doing it out of the goodness of their hearts.

Well, yeh, but he's trying to make a point about what he believes, so logic doesn't matter.

That $500K w/ 20% down misrepresentation confirms it, of course. The Denver market is high & hot atm, and median price is under $300K-

http://www.zillow.com/denver-metro-co_r394530/home-values/

There are a variety of ways to avoid 20% down, as well. It's best if you can but not necessarily prohibitive if you can't.

The whole schtick about investment companies buying distressed properties is true, however, but it's such a tiny part of it all that it really doesn't matter. It's just an attempt to devalue current homeowners.

 

[TheSlamma]

Well, yeh, but he's trying to make a point about what he believes, so logic doesn't matter.

That $500K w/ 20% down misrepresentation confirms it, of course. The Denver market is high & hot atm, and median price is under $300K-

http://www.zillow.com/denver-metro-co_r394530/home-values/

There are a variety of ways to avoid 20% down, as well. It's best if you can but not necessarily prohibitive if you can't.

The whole schtick about investment companies buying distressed properties is true, however, but it's such a tiny part of it all that it really doesn't matter. It's just an attempt to devalue current homeowners.

20% of $250,000 is a lot, and those other methods just leave people paying PMI which is bullshit and with crippling high monthly payments.

Are you telling me that real estate and wage increases are not disproportionate?

 

[Jhhnn]

20% of $250,000 is a lot, and those other methods just leave people paying PMI which is bullshit and with crippling high monthly payments.

Are you telling me that real estate and wage increases are not disproportionate?

I didn't say that.

Homeowners benefit from rising prices over time regardless of interest rate assuming any sort of wage increase at all because they're locked in at a payment whose value diminishes over time. That can't be said for rent. An upward trending market lets low down buyers shed PMI sooner, as well, something that's been happening for decades. Well, other than what's happened as a result of the Ownership Society scam. I'm confident that some people are still underwater on account of that.

 

[TheSlamma]

I didn't say that.

Homeowners benefit from rising prices over time regardless of interest rate assuming any sort of wage increase at all because they're locked in at a payment whose value diminishes over time. That can't be said for rent. An upward trending market lets low down buyers shed PMI sooner, as well, something that's been happening for decades. Well, other than what's happened as a result of the Ownership Society scam. I'm confident that some people are still underwater on account of that.

I agree with a lot of what you said, I think before though house prices increased at a steady rate that would not only benefit current owners but also allowed for a healthy first time buyer market too.

Right now unless you are in ahem "less desirable states" then we are seeing prices go up way too fast. I know Denver is insane with it's increases but other large cities are seeing these increases too just not as much, so instead of insane theirs is just a lot , but with that I see affordability going away.

I don't like the short game, I like long term sustainability and I'm not seeing this as sustainable. I think a lot of the driver of these house prices right now is because they increased the mortgage to income ratio to 44%, super low interest rates and people are just looking at the payment and not the total cost of the house. To those people that go all the way to 44% what happens if 1 person in the household loses their job? or when your property taxes go up drastically from this overinflated market and all of a sudden their $2200 payment goes to $2500?

Hey if this all levels out and works out great, my issue is still that I feel like I do not have any incentive at all to keep a savings account like I did before (hey even if it wasn't a ton it HELPED) and writing off the interest on a mortgage doesn't even match standard deduction anymore (Hey even if it wasn't a ton it HELPED). If those things benefit the rich more than us it is what it is, right now though we have no benefit from either and last I checked the rich are still "making it work"

 

[Jhhnn]

Well, raising interest rates certainly won't help first time buyers. You can see how that works with this calculator-

https://www.zillow.com/home-loans?s...gclid=CKuu9KDx4MYCFYcCaQodqUgC6g#page=landing

Figure $250K for first time buyers w/ $15K down in my zipcode, 80223. Now play with the interest rate to see what happens. At current rates, Payments are $1611/mo, about the same as current rents. $149/mo PMI goes away at some point & rents will obviously be higher when that happens. Raise the interest rate by 1% & the payment jumps by $140/mo. At last year's rates, the payment drops by $150/mo. Forget refinancing to a lower rate down the road because it probably won't happen at the current 4.175% rate, which is gouging in anticipation of increases by the FRB.

Getting the $15K is the hardest part & raising rates will just price out more buyers.

It's still do-able & desirable for many folks considering rents other than from a very short term perspective. That doesn't mean I don't wish it were better. It's bad enough w/o exaggerating.

 

[Corn]

I stand corrected, I must have been looking at numbers around marginal rates and projected revenue increases etc.

On a side note, if total revenues (local, state, federal) are expected to be about $6 trillion for 2014, and GDP is roughly $15 trillion, it's staggering to see that roughly 40% of all income (actually more, since we had a deficit) is used to fund government. Yowser.

Don't stand corrected. Eskimospy is an idiot. The top 1% of earners don't earn anywhere near 20% of GDP. They earn about 20% of the total income earned, but that is a far cry from 20% of GDP. Liberal math is fun. http://www.bankrate.com/finance/taxes/top-1-percent-earn.aspx

 

[Jhhnn]

I stand corrected, I must have been looking at numbers around marginal rates and projected revenue increases etc.

On a side note, if total revenues (local, state, federal) are expected to be about $6 trillion for 2014, and GDP is roughly $15 trillion, it's staggering to see that roughly 40% of all income (actually more, since we had a deficit) is used to fund government. Yowser.

If it wasn't funding govt it'd just be fueling greater inequality. Govt spending particularly govt employment also serves to stabilize the economy. That's good for working people in general. Given the vicissitudes imposed by the Job Creators, maybe we need more govt, not less.

 

[shira]

Actually, I remember seeing the stats on that. Even if you taxed the top 1% of earners at 100% (ie, just take all their income away), it would not make a dent in our debt -- it would not "fix our money problems".

Actually, you're wrong about that. Look at "Table 1."

Notice that the top 1% had a total Adjusted Gross Income of almost $2 Trillion in 2012, yet paid only $451 billion in income tax. That left more than $1.5 trillion in their hands. Way, way, way more than enough to cover our current yearly deficit of $350 billion.

In fact, if the top 1% covered the deficit, they'd still be left with a ton of money.

 

[fskimospy]

Don't stand corrected. Eskimospy is an idiot. The top 1% of earners don't earn anywhere near 20% of GDP. They earn about 20% of the total income earned, but that is a far cry from 20% of GDP. Liberal math is fun. http://www.bankrate.com/finance/taxes/top-1-percent-earn.aspx

Haha. Quoted for self ownage. You're an idiot.

 

[alcoholbob]

You could invade China. They have $21 trillion in savings. Could cover the entire US Federal debt and then some, lel.

http://www.smh.com.au/business/chin...-set-to-change-the-world-20150626-ghy4x1.html

As long as the invasion costs less than $3 trillion you can break even.

 

[Meghan54]

Haha. Quoted for self ownage. You're an idiot.

Well, he's not really wrong. Using the 2012 tax table provided above, the top 1% had an AGI of $1.977T. The GDP of 2012 was $16.16T, which would give $3.23T as 20%. The top 1%'ers had a tick over 12%.

 

[fskimospy]

Well, he's not really wrong. Using the 2012 tax table provided above, the top 1% had an AGI of $1.977T. The GDP of 2012 was $16.16T, which would give $3.23T as 20%. The top 1%'ers had a tick over 12%.

His own link said the 1% earned 17% of income and that other studies put it higher. He didn't understand what he was reading.

Also, that table above where ylu quoted $1.9 trillion was talking about AGI, not total income. Funny thing is that the 1% accounted for 21% of AGI by that table.

So yeah, he's either a pedant or an idiot.

 

[Exterous]

When interest rates go up, the true Bush constituency earns more money parking theirs in the safest investment in the world, US govt bonds. They like that, & right wing political operatives like to whine about the interest on the debt at the same time.

Honestly, for the smart wealthy it really doesn't matter. If interest rates go up then certain investments make more sense over others. If they stay the same then they will continue to utilize any financial vehicle subject to IRS 7520 calculations. Enough rules and programs have been created that pretty much any situation has an benefit somewhere that can be exploited

How are we as middle class getting any benefits from these low interest rates though also?

3: Also you get a piss poor tax write off on that mortgage interest rate.

You realize the deduction is 'piss poor' because you aren't paying as much in interest right? The deduction does not fully offset interest so a piss poor deduction is actually a good thing as it means you aren't paying as much in monthly interest

 

[PokerGuy]

The facts are undeniable, the governor has instituted higher tax on top earners, raised minimum wage and by nearly every measure the state economy is doing better and more people are working.

Yep, those facts might be undeniable, but they don't mean an action (or even set of actions) by the governor was actually responsible for anything improving. Nor does it show that other actions might not have led to even better results. This is why you need a controlled environment or the ability to isolate factors to come to such conclusions. Real economists have to do a LOT of work to actually isolate specific factors and determine their effect. Even then, there is usually plenty of disagreement on those conclusions even among good economists.

Gross simplifications like "he raised taxes and things got better!" are worthless, that's why you usually see them from people pushing political ideology or agenda.

 

[sm625]

When interest rates go up, the true Bush constituency earns more money parking theirs in the safest investment in the world, US govt bonds.

No. When interest rates rise, the value of bonds actually decreases. If the interest rate on 30 year bonds were to double, which an increase of just 3%, then those bonds would lose 60% of their value. It is far more difficult to make money in a rising rate environment.

 

[fskimospy]

No. When interest rates rise, the value of bonds actually decreases. If the interest rate on 30 year bonds were to double, which an increase of just 3%, then those bonds would lose 60% of their value. It is far more difficult to make money in a rising rate environment.

The value of ALREADY ISSUED bonds decreases because you can purchase bonds with the same face value that pay more interest. New bonds are more valuable than they were before.

 

[sm625]

I'm not fan of the Fed, but if congress set monetary policy then it would be an even worse disaster. The best thing to do would be to replace the Fed with a simple computer program that adjusts interest rates according to simple algorithm. Ok, so it wouldnt exactly be a simple algorithm, but it would be public, so everyone would know what was going to happen and how.

The bigger issue isnt the interest rates though, its the deficit and the money printing. Both congress and the Fed are equally guilty of that. Interest on the debt inflates the money supply. Eventually you reach a point where there is so much debt that interest rates must be set to 0% or else the debt becomes unserviceable. That is why interest rates have been pegged to 0% for so many years. The debt is unserviceable. To compensate, the Fed has been buying the debt to create the new money that would have been created in a more normal interest rate environment. They do this solely to prop up the bond AND real estate markets, ie "asset prices". If interest rates on bonds rise, the coupon value falls, which wrecks the balance sheets of anyone holding those bonds. With real estate, rising rates reduce the amount of principal in a mortgage and increase the amount of interest. If you can afford a $1500 a month mortgage then you can buy a $315,000 home at 4%. But at 8%, that same $1500 a month only buys you a $205,000 home. That is how low interest rates inflate asset values. That is exactly why interest rates are not allowed to rise. The balance sheets of too many very rich people would be ruined. Our monetary policy is based entirely around asset price inflation, and the maintaining of unsustainably high asset prices. Which is a completely disastrous policy. But its exactly what happens when the 1% capture and control the monetary policy of an entire nation. You have to ask yourself, would congress fix that problem? NO, because congress is also captured by that same 1%.

 

[fskimospy]

I'm not fan of the Fed, but if congress set monetary policy then it would be an even worse disaster. The best thing to do would be to replace the Fed with a simple computer program that adjusts interest rates according to simple algorithm. Ok, so it wouldnt exactly be a simple algorithm, but it would be public, so everyone would know what was going to happen and how.

The bigger issue isnt the interest rates though, its the deficit and the money printing. Both congress and the Fed are equally guilty of that. Interest on the debt inflates the money supply. Eventually you reach a point where there is so much debt that interest rates must be set to 0% or else the debt becomes unserviceable. That is why interest rates have been pegged to 0% for so many years. The debt is unserviceable. To compensate, the Fed has been buying the debt to create the new money that would have been created in a more normal interest rate environment. They do this solely to prop up the bond AND real estate markets, ie "asset prices". If interest rates on bonds rise, the coupon value falls, which wrecks the balance sheets of anyone holding those bonds. With real estate, rising rates reduce the amount of principal in a mortgage and increase the amount of interest. If you can afford a $1500 a month mortgage then you can buy a $315,000 home at 4%. But at 8%, that same $1500 a month only buys you a $205,000 home. That is how low interest rates inflate asset values. That is exactly why interest rates are not allowed to rise. The balance sheets of too many very rich people would be ruined. Our monetary policy is based entirely around asset price inflation, and the maintaining of unsustainably high asset prices. Which is a completely disastrous policy. But its exactly what happens when the 1% capture and control the monetary policy of an entire nation. You have to ask yourself, would congress fix that problem? NO, because congress is also captured by that same 1%.

That's why you don't double interest rates.

That interest rates exert influence on inflation through the housing market is well known and has been well known for a long time. Why is this meaningful or interesting?

By the way, any ETA on when the government is shutting down GDPNow?

 

[Jhhnn]

I'm not fan of the Fed, but if congress set monetary policy then it would be an even worse disaster. The best thing to do would be to replace the Fed with a simple computer program that adjusts interest rates according to simple algorithm. Ok, so it wouldnt exactly be a simple algorithm, but it would be public, so everyone would know what was going to happen and how.

The bigger issue isnt the interest rates though, its the deficit and the money printing. Both congress and the Fed are equally guilty of that. Interest on the debt inflates the money supply. Eventually you reach a point where there is so much debt that interest rates must be set to 0% or else the debt becomes unserviceable. That is why interest rates have been pegged to 0% for so many years. The debt is unserviceable. To compensate, the Fed has been buying the debt to create the new money that would have been created in a more normal interest rate environment. They do this solely to prop up the bond AND real estate markets, ie "asset prices". If interest rates on bonds rise, the coupon value falls, which wrecks the balance sheets of anyone holding those bonds. With real estate, rising rates reduce the amount of principal in a mortgage and increase the amount of interest. If you can afford a $1500 a month mortgage then you can buy a $315,000 home at 4%. But at 8%, that same $1500 a month only buys you a $205,000 home. That is how low interest rates inflate asset values. That is exactly why interest rates are not allowed to rise. The balance sheets of too many very rich people would be ruined. Our monetary policy is based entirely around asset price inflation, and the maintaining of unsustainably high asset prices. Which is a completely disastrous policy. But its exactly what happens when the 1% capture and control the monetary policy of an entire nation. You have to ask yourself, would congress fix that problem? NO, because congress is also captured by that same 1%.

You've touched on something I don't think you really understand wrt sustainable debt. It's not about govt debt at all but rather private debt. In the Ownership Society, bankers created more debt than the money supply & distribution of income would support. That's the story of every boom/bust financial panic in history.

In times past, hoarding, deflation & default simply destroyed that debt starting the cycle all over again, destroying the lives of millions in the process. Intervention by the FRB & the govt put us on a different & unknown path, one where near total destruction has been thwarted. There's enough money to do it. What we need now is better distribution to debtors & the usual Free Market! rah-rah obviously can't deliver.

 

[lotus503]

Yep, those facts might be undeniable, but they don't mean an action (or even set of actions) by the governor was actually responsible for anything improving. Nor does it show that other actions might not have led to even better results. This is why you need a controlled environment or the ability to isolate factors to come to such conclusions. Real economists have to do a LOT of work to actually isolate specific factors and determine their effect. Even then, there is usually plenty of disagreement on those conclusions even among good economists.

Gross simplifications like "he raised taxes and things got better!" are worthless, that's why you usually see them from people pushing political ideology or agenda.

I think what your looking to say is correlation is not causation, to a degree I agree.

However Minnesota is kicking Wisconsin's ass and they have completely different policy approaches, by nearly every measure Mark Dayton's policy approach has produced better results than Scott Walker's.


The Myths that some folks like to spout about minimum wage, taxes etc, are being debunked by actual results in Minnesota.

 

[Jhhnn]

I think what your looking to say is correlation is not causation, to a degree I agree.

However Minnesota is kicking Wisconsin's ass and they have completely different policy approaches, by nearly every measure Mark Dayton's policy approach has produced better results than Scott Walker's.


The Myths that some folks like to spout about minimum wage, taxes etc, are being debunked by actual results in Minnesota.

Well, yeh, but that doesn't matter when you can make it emotional & divisive with well crafted propaganda. Then it's all about gut feelings that aren't rational at all.

Bet on one thing, that Walker's cronies are doing very well for themselves & will continue to do so so long as their line of bullshit is believed.

 

[PokerGuy]

I think what your looking to say is correlation is not causation, to a degree I agree.

However Minnesota is kicking Wisconsin's ass and they have completely different policy approaches, by nearly every measure Mark Dayton's policy approach has produced better results than Scott Walker's.


The Myths that some folks like to spout about minimum wage, taxes etc, are being debunked by actual results in Minnesota.

No, nothing is being "debunked", unless there's actual research done to isolate the factors and establish causation of specific policies. MN =/= WI.